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Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

By John D. Oravecz

Tuesday, Oct. 8, 2013, 4:48 p.m.

Alcoa Inc.'s strategy of refocusing on products with better profit margins is working, and resulted in a third-quarter profit despite lower prices for the world's most abundant metal, CEO Klaus Kleinfeld said on Tuesday.

“Our performance this quarter shows our repositioning of the company is on the right path,” Kleinfeld said. “We have been focusing on the things we can control.”

Its manufacturing businesses — which serve building and construction markets, among others — and strong performance in automotive and aerospace segments offset a 3 percent decline in revenue from commodity aluminum, which suffered from a $57 per metric ton drop in price.

The nation's largest aluminum producer reported net income of $24 million, or 2 cents a share, compared with a loss of $143 million, or 13 cents a share a year ago. Revenue was $5.77 billion in the quarter, down from $5.83 billion a year ago.

“We continued to build our value-added businesses, capturing demand for innovative material solutions across multiple markets,” Kleinfeld said. “Our commodity business delivered better performance in a tougher market environment, and we continued to reshape the portfolio to lower the cost base.”

The company's performance was helped by a drive to cut expenses. Kleinfeld said the company reduced annual costs by $825 million by the end of the quarter — achieving its full-year target of $750 million in nine months. During the quarter, Alcoa reduced smelting capacity in Quebec and Massena, N.Y.

The company's stock fell 3 cents a share, closing at $7.94.

Alcoa employs about 2,000 in the Pittsburgh region, including the Alcoa Corporate Center on the North Shore, Alcoa Technical Center in Upper Burrell and Traco Co., a window manufacturer in Cranberry. Executive offices are in New York.

Alcoa reiterated its forecast that world demand for aluminum will increase at a 7 percent rate, including an 11 percent to 12 percent growth in China.

“We have been growing both our top and bottom line, so we are on the right path,” Kleinfeld said, emphasizing opportunities in the aerospace and especially automotive markets. “We have a historic opportunity in automotive as the industry's high-value cars are aluminizing.”

Automakers are turning to aluminum as they gear up to meet the government's 54.5 mpg target by 2025 with lighter-weight materials and will switch to full-scale production using aluminum in their best-selling vehicles.

Lloyd O'Carroll, an analyst at Davenport & Co. in Richmond, Va., said in a recent report, “We see this as the most important, transformative trend for the aluminum industry on a medium and long-term basis since the introduction of the aluminum can.”

Kleinfeld said aluminum can cut 40 percent of the weight from the vehicle chassis and bring total weight savings of about 10 percent, equaling 7 percent fuel efficiency savings.

Alcoa is “putting our money where our mouth is,” he said, building three plants to produce body sheet — in Davenport, Iowa, which will go online by the end of this year; in Saudi Arabia, to serve international and U.S. markets by 2015; and in Alcoa, Tenn., which will start production in 2016.

Kleinfeld said the key is “Alcoa 951,” a pretreatment coating developed at Alcoa Technical Center that is being adopted by automakers to solve the years-old problem of bonding aluminum to other materials.

A survey of automakers by Ducker Worldwide Inc. of Troy, Mich., forecasts the use of aluminum per vehicle will rise from 327 pounds in 2009 to 550 pounds in 2025.

Aluminum ingot prices continue to fall amid a market glut, Kleinfeld said, because of “market confusion” caused by a London Metal Exchange proposal to change its rules governing warehousing of the metal. The LME said on July 1 that it is consulting with warehouse users on a proposal to cut delivery backlogs. Its board is scheduled to decide this month whether to implement changes next year.

The base price for aluminum that Alcoa and others produce, set by the LME, is about $1,837 per metric ton, down from a 25-year high of about $3,100 in June 2008. Premiums paid by industrial consumers of the metal in addition to the LME price had been at record highs but recently started to decline.

Klinefeld called the LME's handling of the matter “pretty irresponsible,” and could result in making the market more uncertain. He previously warned that the situation would force “people will look for alternatives.”

On Monday, the CME Group in Chicago said it will offer a competing pricing contract to compete with the LME's futures contract that has traditionally set prices.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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